Trusts

Trusts

Questions commonly arise concerning whether trust assets can be included in consideration relating to family law property settlements.

Section 79(1)(a) of the Family Law Act provides for the court to make orders “with respect to the property of the parties to the marriage or either of them – altering the interests of the parties to the marriage in the property”.

As a general proposition, where a party is one of a number of potential beneficiaries under a discretionary trust, where there is no pattern or history of distributions from the trust to that party, and where the party has no control over the operation of the trust or the discretion, the assets of the trust are not likely to seen as property that can be taken into account when making an order altering the property interests of the parties to a marriage under family law (see Whitehead (1979) 5 Fam LR 308).

Where a party to a marriage can effectively treat assets of a trust as their own or has some element of control over those assets, the trust property can be treated as property of that party under family law (see, for example, Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 and Ashton (1986) 11 Fam LR 457).

A trustee cannot generally be directed to act in a manner that is not consistent with the trustee’s duties under to the trust deed or in a manner contrary to the due administration of the trust (see BP and KS [2002] FamCA 1454).

Section 80(1)(e) of the Family Law Act says the “court, in exercising its powers under this Part, may do any or all of the following…appoint or remove trustees”. This would generally only occur where the assets of the trust can be treated as property for family law purposes (see above) and the court cannot generally vary the terms of an existing trust.